RBI asks States to increase its borrowing plans under auctions

Mumbai, Apr 18 (UNI) Reserve Bank of India (RBI) has asked the State Governments to increase their market borrowing programme under the auction route with a view to covering the entire borrowing plans through auction as early as possible.

In its annual policy statement, RBI said States, at their discretion and initiative, would be encouraged to develop an advance indicative open market borrowing calender as in the case of the Union Government borrowing programme.

The auction route mechanism promotes price discovery, maintains market disciple and contributes to improved secondary market liquidity, RBI said.

At present, State Governments have the discretion to issue securities by way of auctions, tap sales or a combination of both under the open market borrowing programme. The issue of State Government securities, however, do not follow any indicative calendar as in the case of Centre's borrowing programme.

RBI also asked the States to revisit the scheme of consolidated sinking funds (CSFs) that needs to be enlarged to cover the entire liabilities of the Governments and not just open market borrowings as at present.

The States were allowed to avail the facility of non-competitive bidding of dated securities in the primary auction of the State Development Loans (SDFs) and introduce purchase and resale of SDLs by RBI under the overnight liquidity adjustment facility (LAF) repo operations.

The policy statement said the proposed standing technical comittee under the aegis of State Finance Secretaries should initite dialogue with both Centre and RBI on various issues relating to the borrowing programmes of the Central and State Governments through a consensual and cooperative approach.

UNI GC SA AW1717